The Commission has established rules to bolster investment in the nation's transmission infrastructure, and to promote electric power reliability and lower costs for consumers, by reducing transmission congestion. The rule identifies specific incentives the Commission would allow based on a case-by-case analysis of individual transmission proposals.

The Energy Policy Act of 2005 directed the Commission to develop incentive-based rate treatments for transmission of electric energy in interstate commerce, adding a new section 219 to the Federal Power Act. The rule implemented this new statutory directive through the following incentive-based rate treatments:

Incentive rates of return on equity for new investment by public utilities (both traditional utilities and stand-alone transmission companies, or transcos);

Full recovery of prudently incurred construction work in progress;

Full recovery of prudently incurred pre-operations costs;

Full recovery of prudently incurred costs of abandoned facilities;

Use of hypothetical capital structures;

Accumulated deferred income taxes for transcos;

Adjustments to book value for transco sales/purchases;

Accelerated depreciation;

Deferred cost recovery for utilities with retail rate freezes; and

A higher rate of return on equity for utilities that join and/or continue to be members of transmission organizations, such as (but not limited to) regional transmission organizations and independent system operators.

All rates approved under the rules are subject to Federal Power Act rate filing standards. The rule allows utilities on a case-by-case basis to select and justify the package of incentives needed to support new investment. Additionally, the rule provides expedited procedures for the approval of incentives to provide utilities greater regulatory certainty and facilitate the financing of projects. The rule became effective on September 29, 2006.